El Segundo’s DAZ Systems Inc. has parlayed an obscure niche – reselling software from Oracle Corp. – into big success, with more than 375 employees in some 15 states and India.
But now the company, which has sold and implemented software for growing companies like denim maker True Religion Apparel Inc. and frozen-food manufacturer Amy’s Kitchen Inc., is facing a colossal legal challenge. A Temecula food distributor says DAZ botched a software upgrade, resulting in $280 million in lost sales. The unhappy client, Southwest Traders Inc., has launched a legal battle seeking to recover those alleged losses and damages.
“It didn’t function,” said James O’Callahan, an attorney at Girardi Keese representing Southwest Traders. “They’ve suffered substantial losses and had to lay people off. They have to rebuild the business.”
DAZ has had other issues with former clients. It is fighting another lawsuit by Chippewa Falls, Wis., apparel retailer Mason Cos. Inc., which alleges substandard software implementation. In 2011, it settled a lawsuit filed by a division of Philadelphia services company Aramark Corp. for software problems.
The company declined to comment on the matters.
DAZ, which has been recognized by Oracle as one of the top global resellers of the company’s software to medium-size and small businesses, claims to have serviced more than 400 clients. The company, founded in 1995, charges millions of dollars to implement software that helps streamline supply chains and manage product deliveries. Its clients are often growing companies that need new software to accommodate more business. The process takes months and thousands of man hours.
Keith M. Gregory, an attorney at Snell & Wilmer LLP who reviewed the Southwest Traders case for the Business Journal, said it can be difficult to prove what is or isn’t adequate with highly technical work. He also noted that one possible defense could lie in the contract’s language.
“If DAZ completely fulfilled the contract, it would make it more difficult for the plaintiff to prove the amount of damages it is claiming,” he said.
In 2008, Southwest Traders was a growing company, with nearly 600 employees and annual sales of $453 million. It said it had been profitable and had grown every year since 1977. The company, which distributes smoothie ingredients, ice cream and yogurt to restaurants, had been running on a computer system purchased in the 1990s. It decided to buy software that could handle future growth as well as better manage distribution and warehouses.